What are Market Linked Debentures (MLDs)?
Market Linked Debentures or MLDS can be stated simply as debt securities where the return on investment the investor gets totally depends upon the market index’s performance.
Market Linked Debentures are basically fixed-income structured products that give no periodic coupons but pay only at maturity.
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Types of Market-Linked Debentures
How to Invest in Market Linked Debentures
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Features of Market Linked Debentures
- Risk – Risk is associated with the market linked debentures as the return calculated on the investment is highly dependent on the underlying market index. Resulting if the market couldn’t perform well, then the investor may not earn interest.
- Credit Risk of Issuer – For any debt instrument, either (PP-MLD) or (NPP-MLD), the amount of risk, whether higher or lower, is associated from the issuer’s end. While investing, an investor should calculate the creditworthiness of the company.
- Liquidity – MLDs are not as liquid as other debt instruments like bonds because they don’t have any secondary market, and the investor cannot resell them.
- Maturity – Market-linked Debentures have a fixed date of maturity, and the investor is only liable to get the principal amount along with earned interest at that point in time only.
- Returns – The return on investment in MLDs depends on the market index. Here, the investor can earn higher returns on investment if the market performs well.
Difference between MLD (Market Linked Debentures) and NCD (Non-Convertible Debentures)
- MLDs and NCDs are two types of debt instruments companies issue to allocate the required funds from investors.
- NCD is basically fixed-income security where the issuer assures to pay a fixed interest rate on the principal amount to the investor. Non-Convertible Debentures can’t be converted into equity shares of the issuing company, as the name suggests, “non-convertible”. It has a specified maturity period, after which the investor can redeem the principal amount and the accumulated interest.
- On the contrary, Market Linked Debentures are structured products linked to the performance of the market index or asset, like commodities, currencies and stocks. MLDs return on investments is not fixed because it is linked to the underlying asset’s performance. So, the returns on MLDs are higher than NCDs when the market performs well but can be negative or zero when the market isn’t performing well.
Why Invest in Market Linked Debentures (MLDs)?
The Market Linked Debentures have their own importance and are preferred by investors willing to take risks for a higher return on investment. Debentures are chosen for a higher fixed or floating interest rate quickly.
Advantages of Investing in Market Linked Debentures (MLDs) Bonds
Diversification
Investors look forward to investing their money in different investment options to diversify their portfolios and avail maximum returns on their investments.
Yield on Investment
Investing in Market Linked Debentures generates a high yield on investments because market linked debentures do not provide any coupons, and the investor will get the whole principal and interest earned at maturity.
Ease of Investment
Investment in Debenture has been made easy for investors. Investors today can make a comparison for a better decision. Digifinn allows you to make comparisons online for the potential investment in bonds.
Who Should Invest in Market Linked Debentures (MLDs)?
MLD in the finance sector is also a good investment option for common investors. MLDs are commonly preferred by business families, offices, or HNIs (High Net Worth Individuals) looking for a good post-tax return.
Digifinn is a highly sought online platform for bonds and other securities. You can browse through the different product categories for the hassle-free potential trade in bonds.
Investment in non convertible debentures can be a good choice for investors interested in receiving periodic interest on the investment made.